Plaintiffs claim that the exchange illegally sold unregistered securities, and incorrectly described them “safe” or “fiat-backed.” Binance.US was today sued in a class action lawsuit. The plaintiffs claim that Binance.US misled consumers regarding the safety of Terra’s stablecoin UST and its native token LUNA.
The suit also alleges that Binance infringed federal law by selling UST or LUNA, cryptocurrencies the plaintiffs claim to be securities that should have registered with the SEC and by operating an unregistered securities trading platform.
The class action was filed this morning at the U.S. District Court in Northern California. It marks the first major attempt by American courts to remedy the damage done by the dramatic collapse of UST & LUNA last month which wiped out around $40 billion of value.
Plaintiffs cite Binance advertisements which, in the months before UST’s crash, proclaimed the stablecoin to be “safe” and “fiat backed,” claims that the plaintiff’s lawyers claim are false.
UST is an algorithmic stability coin that, unlike other stablecoins backed with real-world assets and relies solely on an algorithmic relation with Terra’s native token, LUNA for stability.
A mechanism was designed to allow the exchange of 1 UST to 1 LUNA in the event that the U.S. Dollar’s value falls below UST. This was to encourage speculators and close the value gap between USTs and the dollar.
It worked up until last month when UST’s sudden depegging brought LUNA with it. This collapsed both tokens’ values and wiping out thousands, including the unnamed number of plaintiffs in today’s lawsuit.
The suit alleged that Binance’s failures to disclose UST’s and LUNA’s risk to potential investors was not an accident, but was intentional and essential to Binance’s long-term strategy.
The complaint states that Binance U.S.’s business model was designed to illegally enable the sale of unregistered securities for as many U.S. buyers as possible.
Decryptreach out to Binance.US in order for comment but were not contacted by the time of writing.
It is still unclear which cryptocurrencies the U.S. considers securities.
a bipartisan Senate Bill proposed last week ending the SEC’s oversight of the top 200 most valued cryptocurrencies and transferring that jurisdiction over to the federal government’s commodities watchdog the Commodities Future Trading Commision. The same bill would also ban the sale of stablecoins without a 100% cash reserve like UST.
a report last week revealed the SEC is currently investigating Terra’s violation of federal investor-protection laws in creating UST, and overseeing its fall. South Korean prosecutors are looking into Terra’s co-founder Do Kwon for possible misconduct in relation to UST and LUNA’s crashes. Terra and Do Kwon were recently given the order to cooperate in an SEC investigation. However, no major lawsuit was filed in the United States against Terra.
This could change very soon.
An attorney familiar with the matter said Decrypt today’s suit was initiated against Binance.US because it offered investors the best opportunity to recover as much money as possible after Terra’s crash.
According to the same source the plaintiffs in Binance’s suit, New York-based Roche Freedman & Dontzin Nagy & Fleissig, plan to file a similar lawsuit against Terra and to enter arbitrations with other centralized exchanges that sell UST and LUNA including Coinbase.
Tibor Nagy is one of the plaintiffs’ attorneys in today’s lawsuit. He believes that central exchanges like Binance and Coinbase were crucial in spreading the harm of Terra’s demise.
“Thousands of retail investors lost large portions of their savings when centralized exchanges such as Binance chose to make a profit from the sales of unregistered securities, like UST,” Nagy stated to Decrypt. “These Exchanges will have to answer for how they’ve done.”